The Shell Deer Park oil refinery in Deer Park, Texas. Oil prices continue to remain relatively stable at around the $40 range despite fears of a second pandemic wave. Image Credit: AP

Abu Dhabi: Oil prices continue to remain relatively stable at around the $40 range despite fears of a second pandemic wave, which saw prices closing on a weekly low last week with surging COVID-19 cases in the US.

Global benchmark Brent crude saw its closing on $41.02 with West Texas Intermediate (WTI) on $38.49, with both benchmarks coming under pressure as a result of rising coronavirus cases.

“The rally in oil prices has started to stall as an acceleration in the number of COVID-19 cases globally threatens the viability of demand recovery,” said Edward Bell, commodity analyst at Emirates NBD. “Last week was only the second weekly decline for benchmark oil futures in the past nine weeks and falls in line with dissipating momentum in other risk assets,” he said.

“Were the US to go through another extensive lockdown period the impact on demand would likely follow what occurred in April: a steep drop in gasoline and diesel consumption along with a near complete collapse in jet demand,” he added.

Oil prices for the past two months have largely risen as a result of lockdown measures being eased; bringing back demand that was lost.

“As the spectre of lockdowns hangs over the oil market this year, rallies are likely to only be supported by supply side adjustments as demand will be held in check by public health considerations,” Bell noted.

And with current market conditions, oil prices are likely to find support in the mid $30 to the mid $40 range according to Ole Hanson, head of commodity strategy at Saxo Bank, with Opec+ production cuts playing their part in helping rebalance markets and keeping things relatively stable from the supply side.

“The Opec+ group of producers have been doing a fantastic job in cutting production, highlighted by Russia’s 40 per cent drop in exports from its western ports expected next month.

“For the agreement to remain successful, the group also need to see light at the end of the tunnel with regards to when the taps can be turned back on…A flare up of new virus cases may further postpone the timing of when production can be raised, thereby potentially challenging the resolve of the group,” he added.

“We maintain the view, as mentioned in our soon to be published Q3 outlook, that Brent crude oil will most likely trade within a mid-30’s to mid-40’s range during the coming weeks and potentially months.”